Wal-Mart Grocery Strategy Pays

Retailer Beats Profit Expectations; Global Sales Grow 19%

Wal-Mart said fourth-quarter profit rose more than analysts estimated after it stepped up U.S. holiday discounts and boosted sales in Asia and Latin America.

Revenue gained 8.4 percent, and Wal-Mart stock rose the most in a week. The retailer forecast profit in the year through January 2009 that trailed analysts' estimates by as little as 1 cent.

Wal-Mart's sales topped $100 billion for the first time after chief executive H. Lee Scott slashed prices on groceries and household items for the holidays. Cash-strapped consumers concerned about higher gasoline prices and job losses have boosted sales at discount stores.

"Nobody gets rich selling groceries, unfortunately, but I do think it's a great way to drive traffic," Peter Sorrentino, a senior portfolio manager at Huntington Asset Advisors in Cincinnati, said in a Bloomberg Television interview. "If the consumer's shifting down in terms of the way they're spending their dollars, that benefits Wal-Mart." Sorrentino helps oversee $12 billion in assets that include Wal-Mart shares.

Profit climbed 4 percent, to $4.1 billion ($1.02 a share) from $3.94 billion (95 cents) in the comparable period a year earlier, the Bentonville, Ark., company said in a statement.

Wal-Mart said it expects to earn $3.30 to $3.43 a share for the year that ends in early 2009, less than the $3.44 estimated by analysts.

Wal-Mart shares closed at $49.66, up 22 cents. The shares increased 4 percent this year before yesterday, compared with an 8.1 percent decrease in the Standard & Poor's 500-stock index and a 6.9 percent drop in the Dow Jones industrial average.

The first drop in employment in more than four years last month, declining home values and higher gasoline prices are causing Americans to limit spending.

Confidence among U.S. consumers fell more than predicted in February as expectations about inflation rose. The Reuters/University of Michigan preliminary index of consumer sentiment decreased to 69.6, the lowest since February 1992.

Sales at stores open at least a year at U.S. retailers climbed 0.5 percent last month, the worst January since 1970, the International Council of Shopping Centers said. While many retailers posted a decline, Wal-Mart had a 0.5 percent gain as customers shopped at discounters.

While Wal-Mart has suffered because many of its customers live paycheck to paycheck, the retailer has also gained because of its appeal as a destination for cost-conscious shoppers, said David Abella, an analyst at Rochdale Investment Management in New York with $2.5 billion in assets including Wal-Mart shares.

"They are benefiting from it at the expense of competitors," said Abella. "The low-price effort, which is working especially well because of the slowdown, probably helped get some market share back from Target."

Revenue for the three months ended Jan. 31 rose to $107.4 billion. International sales grew 19 percent, led by China, Brazil and Argentina.

"Clearly our underlying operational performance exceeded the expectations we had at the beginning of the quarter," Scott said on a recorded call. The performance of the U.S. economy "will be a critical factor" this year, he said.